Kiiii

I SOCbtvOf
m

Petmleun
. .

En&earn

SPE 30233

Productivity And Profitability From Mature North Sea Fields

John S Leggate*, John B Gregory*, Simon C Bennett
* SPE Munbas

QwW 1995 SCCIOIY of Patrdwm Engineers, lnc

Ths -r was prepared for pre.sentatmn at the Eumpsan Formatmn Dama~ Conlerew held m The Hagw, The Netherlands, 1916 May 1995

Ths paper was selected for presanlahon by an SPE Prcgram Comm!tme Iollmvmg rewew of Inforrnatmn contmned m an abstract subfnmad by w atihor(s) COntants of LhaPnmr, as presentaci
have ml been rwmved by Um SocKIry 01 Petrobum EngIrwers and am stkqacted to mmection by tha autlmr(s) The matanal, as presented -S no! necus.sar+ roflecf any POSOKXI 01 M
%cmfy of Petroleum EngIrteam, is offtcers, or members Papms pms.sntad at SPE meetmgs are subject to pubk.atmn revmn by Ed!tonal Corm-n-s of ma SCCWtyof Petr&uM EngInwrs
Pernm.mcm in cqy K resmcted to m abstract of not mom than 30) vmnjs lllustmtIo’M may rmt h cqx~ The abstrm should -lam COrK.pICIJCUSw~mnt of WTWrOand ~ ~
~ FWW IS P-ITtOd w~e Mmnan, SpE. P.O Box 833336 Ikhardsw TX 75083-?-536 U.S.A (Facs!m!tn 214-952-843)

BP reviewed the shape of its UKCS upstream

portfolio and identified four mature assets from
BPX recognised that a radically different approach which fhmncial returns were extremeIy limited in
was required in the management of its mature North comparison with the effort involved in managing
Sea oil fields. In January 1994 the Beatrice, them. Typically, the fields in question were
Buchan, Clyde and Thistle fields were brought producing between 10,000 and 25,000 barrels of oil
together into a single mature asset - MAST - with the per day, off a cost base which, by UKCS standards,
objectives of maximizing economic recovery, was probably no better than average. Clearly,
extending the delivery of positive cash flows and something different was required to improve the cash
deferring non-value adding abandonment generation of these assets, so top quartile operating
expenditure. During 1994 the MAST team has cost targets were set and the fields placed under the
achieved top quartile business performance when management of a small, highly -incentivised team
compared to other North Sea operators and aims to (MAST), whose emphasis was placed clearly on
be best in class by the end of 1995. This has come performance delivery. This paper describes the
about through aggressive cost reduction and events of 1994, which have resulted in signiilcant
xnaintaining/enhancing oil production, yet sustaining improvements in business performance and some
an already good HSE pdOllIliUlC12 extremely important and value-adding learning from
BP’s perspective.
Key to this success has been the use of
benchmarking data, the setting of extra-ordinary l’H~ PRE . ~
targets, the proactive evolution of the market place,
the use of novel organisational structures and the Prior to a new approach being taken with Beatrice,
encouragement of certain behaviors within the team. Buchan, Clyde and Thistle, the contribution of these
Success to date has provided the space to consider fields amounted to just 4% of BP’s upstream UKCS
opportunities for growth such that there is now production, yet accounted for more than 17% of the
confidence that the MAST business will continue to resource base (operating costs, people, etc.). More
make a positive cash flow contribution to BPX into than 1000 individual service contracts were in
the next rnillenium. operation in the marketplace and we were handling
50,000 invoices each year. The organisation was
TRODUCTIO~ characterised by complexity, many interfaces,
unclear accountabilities and large staff numbers,
During the second half of 1993, in the face of the oil Additionally, there were complex partnerships with
price collapsing to its lowest real level for 20 years, no fewer than 14 different Partners. Overall BP
equity share across the four fields was round one
References and illustrations at end of paper. third.
2 PRODUCTIVITY AND PROFITABILITY FROM MATURE NORTH SEA FIELDS SPE 30233

Tdm.ically, all four fields were in various stages of

maturity, and generally ck&r&d by high water
CUL large numbers of wells and ageing facilities The business strategy with respect to these mature
which are costly to maintain and operate. Them wem fields can be described as encompassing :
no operational synergies between the assets, with
Thistle being a huge fmt generation structure located Securing the robustness of the business at
in the east Shetland basin, Beatrice being in the distress oil prices.
environmentally-sensitive inner Moray Firth, Buchan Managing primarily on costs rather than value.
being an ageing floating production facility close to Setting extraordinary business targets as a
Fortk and Clyde being a more modern central North fundamental organisational style and thereby
Sea facility. Abandonment was predicted to occur encouraging people to push the boundaries of
variousiy in 1995 for Bearnce through to 1999 for performance.
Clyde. Ensuring that all staff are performance-driven and
motivated to be successful.
Net cash flow generation potential (BP share) in Heavily dependent on the marketplace to deliver
1994 was just $5m at an assumed oil price of $14 per SCMCCS and SUppOrt.
bard. Outward looking, and always aware of the
dynamics of competition.
Constantly benchmarking and looking for
performance comparators.
A small management team of 20 persons (in Participating in federal (cross-asset) learning for
comparison with the 75 persons dtitly employed the gr&ter good of BP.
OllShOlt by these assets pmiOUSly) Was selected and
challenged to: All of these are core and remain the absolute
prerogatives of the management team.
● Improve an already excellent health, safety and
environmental record. BUUN.E!NJ PROC_
● Achieve top quartile operating costs by the end of
1995 (broadly this meant a 30% reduction in Core processes which remain under the control of the
costs). management team include:
“ Maximise the use of the marketplace to deliver
extraordimq results. ● Performance contracting and setting of business
● Push accountability and decision making down in targets.
the organisation - in particular, transferring this ● The performance measurement and review
to offshore Stiiff. process.
c Simplify and flatten the organisation. “ Safety management.
“ Deliver $16m net cash flow at $14 per barrel oil ● The generation of investment choices and
price. decision making on them.

The desired business outcome was continued cash However, non-tom processes which are now carried
genemtion at low oil prices with a resultant material out in the marlwtplace include :
shift in abandonment timing. This would maximise
the recovery of technical reserves, previously “ Accounting.
considered uneconomic at $14 per band oil price, ● Resexvoir, well and facilities engineering.
and defer expensive abandonment activities. ● Production reporting.
● C@ations supporL
OR~TION& CON- ● IT and computer systems.

Recent work ( 1) has indicated that a high
performance organisation needs to focus on its
strategy, core processes and resources. This is the
concept of the “virtual organisation”. The MAST
team have tested this theory and found that it has
been helpful in designing the organisation and
developing the necessary style, culture and
behaviors.
Having business processes earned out in the
marketplace enables the setting of tough performance
indicators, the driving of continuous improvements,
and sometimes, step changes in delivery. It also
enables the marketplace to be rewarded through
extraordinary performance, allows much more cross-
fertilisation between companies and fosters
innovation.
SPE30233 JOHN S LEGGATE, SIMON C BENNETT, JOHN B GREGORY 3
OURCFX AND O~ION expenditure, has added some $ 100m to BP’s net
cash flow over the period 1994-7. Relatively low tax
As previously stated, the onshore support take for these fields means that higher oil prices work
organisation for these fields was reduced from through into improved cash flow. For example, at
around 75 persons to a small team of just 20. an oil price of $16 per barrel, the additional cash
Similarly, overhead burden (for technical services flow to BP rises from $1OOMto $150M, making a
and resources, information technology, office significant impact on the business.
accommodation and business support, including
senior BP management) was reduced from around GE
f25m per annum to f15m (40%). Offshore, the BP
workforce was reduced by some 40% through Setting of extraordinary targets can help to achieve
changing work patterns and restructuring, and total quite remarkable improvements in performance.
offshore numbers (which include a significant Having established a reputation as a top quartile cost
contractor workforce) reduced by 20%. performer, it is now necessary to push on to higher
levels of performs.mz - to what is called best in class.
BP MAST teams are now composed of highly The dynamics of the industry mean that performance
experienced staff with extremely broad-ranging improvements are occurring all the time and the pace
backgrounds and technical skills. However, high- of industry “catch up” is fast. There is no time to
performing graduates have been placed within the rest on one’s laurels, and new challenges must be
team as cost effective contributors gaining work sought and addressed. Virtual organisations, with
experience more rapidly than would be the case in a their performance-based culture and focus on
traditional organisation. “Individual contributors” delivery, are best placed to be ahead of the rest. We
have been eliminated from the BP MAST intend to remain so.
organisation, but exist in the marketplace providing
services and support. Offshore, the emphasis is as
much on attitude and behavioral style as it is on
technical knowledge and experience. 1. Predators and Prey : A New Ecology Of
Competition
Contractual relationships with the marketplace are Moore, James F, Harvard Business Review,
geared to “one-stop shopping” whenever possible, May/June 1993, P75
recognizing the niches occupied by certain companies
in the different disciplines of reservoir, well and
facilities engineering.
The full support of the partners in the Beatrice,
3’HE BUS~N~S RESULN Buchan, Clyde and Thistle joint ventures in moving
the MAST initiative forward is acknowledged.
The original plan of $5m cash flow was revised to
$ 16m to take account of movement towards top
quartile operating cost performance. In the event,
$2 lm net cash flow was delivered to BP by these
assets (taking oil price movements aside), the
additional $5m arising from increased productivity
and further reductions in costs. As we enter 1995, it
can be argued that the assets are already performing
at the top quartile cost level - 12 months ahead of
schedule - and the underlying health of the business -
despite its maturity - is sound at oil prices as low as
$12 per barrel.

In addition to the short term cash delivery, Cessation

of Production for these fields has been extended by
at least two years. Beatrice, for example, is now
forecast to deliver profitable production through
1995 and 1996, increasing reserves recovery by
some 7 million bamels.

The impact of the improvements in productivity and

reductions in operating costs, when coupled with the
deferral of non value-adding abandonment
 30
20
/
/0.
w

-/0’ ■

“20 ‘“
=30 -
94 AT $ 14/BBL
‘Q Q o
z 22
 40
T
3o ■ ■

20
I0
0
-/ 0 ■ ■

-20 ■ ■

-30 9

AT $ 14/BBL
94